High hopes that NewBuy will fuel market recovery
Is the Government-sponsored scheme the answer to would-be buyers struggling to find affordable mortgage deposits? Chiara Cavaglieri and Julian Knight report
Many in the property industry will be shouting "good news all around" when the Government unveils its NewBuy Guarantee scheme later this month. But should aspiring homeowners really be welcoming this latest scheme with open arms?
Housing minister Grant Shapps has said that NewBuy will offer 100,000 homebuyers the chance to buy a new-build property with only a 5 per cent deposit. The typical deposit needed to buy a home is 20 per cent; so for a home worth £200,000 buyers under this scheme need a deposit of £10,000 rather than £40,000.
"All the major lenders have signed up," says Steve Turner from the Home Builders Federation, which together with the Council of Mortgage Lenders (CML) has been developing the scheme. "The biggest constraint on sales and construction is the fact that people can't get mortgages. Very few people can afford a 20 or 25 per cent deposit but this will reduce deposits to a realistic, achievable level."
NewBuy is due to be launched later this month but the Government, lenders and housebuilders are still working behind the scenes to iron out the finer details. There are some positive signs, not least of which is that unlike other initiatives that have been rolled out in the past, this is open to existing homeowners as well as first-time buyers (FTBs) on properties worth up to £500,000.
"The housebuilders are behind this and I anticpate to see Nationwide, Lloyds and Santander move in from the likely start date of 12 March," says Nigel Stockton, a financial services director at Countrywide.
Lenders are being offered the security of protection against losses caused by further dips in the housing market. Developers will do their bit by putting up 3.5 per cent of a property's value as deposit with the lenders, and the Government will top up the guarantee with another 5.5 per cent.
"Lenders can lend with more comfort and without incurring risk and capital issues. Lenders typically have lower loan to values (LTVs) on new-builds than existing buildings so what this does is level the playing field a bit," says Sue Anderson from the CML.
What this scheme does not do, however, is make any guarantees as to the supply of mortgage finance, or how competitively priced these mortgages are likely to be. And the initiative is arriving at a tricky time in the market with major lenders such as Halifax and Royal Bank of Scotland increasing rates on a range of home loans last week because the cost of raising the funds on the money markets has risen.
As well as first-time buyers, many existing homeowners are struggling to move into a new home because house prices have dropped and left them with little equity to put towards a new purchase. As things stand, if you haven't built up a large deposit, mortgages carry a considerable premium. For example, Newcastle building society offers a two-year fixed rate at 5.95 per cent up to 95 per cent LTV with a £995 fee, but if you can afford to take a mortgage at 75 per cent, Yorkshire BS has a two-year fixed rate at 2.79 per cent, a saving of over 2 per cent.
If you're not looking to buy a second-hand property, lenders are always going to be more cautious. New-builds make lenders nervous because they are more vulnerable to house price fluctuations and the build quality can vary widely.
"A new-build is harder to value than an existing property and it has a premium attracted to it which doesn't necessarily extend when you resell – it's a bit like driving a car off the forecourt – which tends to mean that even in a buoyant market, lenders are more careful," says Ms Anderson.
In fact, according to Mr Stockton, some lenders won't give mortgages on new build homes: "Apartments are particularly problematic. Nationwide, for instance, used to value new-build the same as second-hand property – normally lower value – therefore below the asking price. However, things are improving and this should continue as NewBuy rolls out."
Lenders are also going to be just as fussy when it comes to applicants, particularly with first-time buyers, so only those with squeaky-clean credit records are going to get the go ahead and there is nothing to suggest that lenders will be in a position to offer cheaper loans under the NewBuy scheme.
In the wake of the financial crisis, lenders were quick to snatch all of their 95 per cent mortgages off the shelves. There may have been several new launches at high LTV already this year with Leeds, Newcastle and Ipswich building societies all releasing 95 per cent loans, but the problem remains that there is still little choice.
"NewBuy should help to improve this, but at this stage it is impossible to quantify what impact the indemnity scheme will have until we start to see products come to market," says David Hollingworth from mortgage broker London & Country.
The latest figures from the British Bankers' Association show a 33 per cent rise in mortgages being approved (increasing from 28,539 in January 2011 to 38,092 this January). But, this is largely due to the stamp duty holiday for first-time buyers which ends in March and overall, there is still something of a mortgage drought when you compare this to the highs of 130,000 loan approvals in November 2006.
If you don't want to wait for NewBuy, some housebuilders have their own high-equity schemes. For example, Linden Homes offers "Step Up" which enables new homeowners to access a 95 per cent LTV loan at a fairly competitive rate of 4.99 per cent, fixed until April 2015. This allowed Daniel Jones, 28, an account manager, to buy a three-bed townhouse in Haywards Heath, West Sussex. After renting a two-bed, Daniel and his partner Nick (and their two dogs) decided they needed more space.
They had been saving for some time but found lenders hesitant and mortgages pricey. After seeing the 95 per cent Linden deal, they were able to put down a deposit of £12,500 for their home, priced just shy of £250,000 and moved in before Christmas.
"We still had to borrow a little from parents, but the majority of it was ours. In the second-hand market you needed at least 85 per cent LTV before you get a decent rate," says Daniel. "We lived in a tiny house before, this place is double the size and we're only paying £100 or so more a month than when we were renting."
Expert view: David Hollingworth, London & Country
"The success of NewBuy will only really be known once we see how lenders respond. There has been gradual improvement in the deals available at higher LTV but they are still thin on the ground and rates remain high."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
elephant appealPrince William signs up for our charity appeal
elephant appealSo says man jailed for cutting off dead elephant's tusks
booksWe examine the best titles for teens
scienceResearchers teach border collie to understand sentences using more than 1,000 words
booksA Christmas story in six parts
travelWill high-value tourism help the workshops of this Renaissance city?
Geoffrey Macnab does not like the comedian's big screen debut
- 1 Top PR exec Justine Sacco under fire for sending racist tweet before flying to Africa
- 2 French pub fined €9,000 after customers returned empties to bar - because it's 'undeclared labour'
- 3 Sun will 'flip upside down' within weeks, says Nasa
- 4 The publisher who played with fire: the battle for control of Larsson's £30m legacy
- 5 Police seize possessions of rough sleepers in crackdown on homelessness
Tom Daley ‘is gay because his father died’ says UK evangelist
Iain Duncan Smith leaves Commons food banks debate early
David Cameron takes his biggest gamble yet as he gets tough on Europe over immigration
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Top PR exec Justine Sacco under fire for sending racist tweet before flying to Africa
Anachronistic and iniquitous, grammar schools are a blot on the British education system
- < Previous
- Next >
iJobs Money & Business
£90000 per annum + benefits: Pro-Recruitment Group: Manager - Financial Servic...
£59999 - £80001 per annum + Benefits: Pro-Recruitment Group: A Top 10 firm in ...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Project Manage...
£60000 - £90000 per annum + benefits + bonus: Harrington Starr: Business Analy...
Day In a Page
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.